Good news: Single-payer pharmacare would be cheaper

When the topic of universal drug coverage comes up in this country, the debate often runs aground on the question of cost. In an environment of government austerity, few seem willing to embrace the idea of a new, national government program.

But a single-payer, universal system would not bankrupt the health care system. Quite the opposite, in fact; we’re paying too much for prescription drugs now, and a single-payer system would be cheaper.

The first way a single-payer system for prescription drugs lowers total costs of medicines is through reduced administration costs. Drug plans must spend a considerable amount of money on administration. This includes a range of tasks, such as negotiating contracts, identifying beneficiaries, collecting revenues, processing claims, providing information, managing risk and marketing.

A report by the World Health Organization estimates that administrative costs for private health insurance are on the order of about 15 per cent of spending in wealthy countries, including Canada. The same report estimates that administrative costs for public health insurance systems in wealthy countries are only 5 per cent of spending — public estimates for Canada are even lower, about 2 per cent.

Administrative costs differ because, when there are multiple insurers in a system that must compete with each other, most administrative costs are duplicated by every insurer. For-profit insurers must also provide their shareholders a return on investment. In contrast, there is no duplication of administrative costs in a single-payer system and some administrative costs — such as marketing — are eliminated altogether.

The additional costs of administration and profits required in a multi-payer system add up substantially. Given that about $10-billion worth of prescription drugs are financed through private insurance in Canada, a single-payer system could reduce administrative costs in the system by approximately $1 billion per year.

A multi-payer system also reduces the bargaining power of insurers and thereby increases the costs of drugs for Canadians. This is particularly important now that drug prices are increasingly being determined through the negotiation of confidential rebates paid directly by manufacturers to insurers.

An insurer acting as a single payer on behalf of an entire province or country has considerable purchasing power. In effect, manufacturers will give single-payer systems their best available prices because the rewards of accessing the entire market for a province or country are great — especially when the alternative is to lose the entire market.

Given that about $10-billion worth of prescription drugs are financed through private insurance in Canada, a single-payer system could reduce administrative costs in the system by approximately $1 billion per year.

Research has shown that the single-payer for pharmaceuticals in New Zealand negotiates brand-name drug prices that are roughly 40 per cent lower than Canadian prices. Compare that to the United States, where a report by the U.S. government found that private insurance companies negotiating on behalf of the Medicare drug benefit program were only receiving discounts of about 14 per cent off of brand-name prices — far less than was hoped when the Medicare drug benefit was enacted. Much of the difference likely stems from the fact that single-payers have more bargaining power even when purchasing for a small country.

The discounts single-payers can achieve on generic drug prices can be even bigger. Canadian provinces recently announced that they were working together to limit the prices of six top-selling generic drugs to just 18 per cent of brand name prices in Canada. This would save governments approximately $100 million. That sounds impressive — but the prices agreed upon by governments here are about ten times higher than prices single-payer systems achieve in other countries.

A single-payer pharmacare system could save Canada billions through lower drug prices and improved administrative efficiency. But implementing a system that would deliver better drug coverage at lower cost will still require political will. It would be the biggest health reform of a generation and likely would meet strong resistance from those whose incomes are dependent on excess spending in our current system.

For those reasons, it’s time to talk to Canadians about pharmacare. It’s time to face the hard facts about our system and its shortcomings. And it’s time to ask Canadians what they want the system to achieve and what options they view as the most acceptable. This is why we developed Pharmacare 2020.

Pharmacare 2020 is an evidence- and experience-informed conversation intended to promote clarity about the future of prescription drug coverage in Canada. At a national symposium on February 26 and 27, it will bring together over 200 delegates — policy-makers, patient advocates, health professionals, manufacturers, insurers and more — to share viewpoints on problems to address, goals to achieve and options to consider. After the symposium, the Pharmacare 2020 website will feature conference presentations, expert interviews and information resources about pharmacare policy challenges, goals and options for reform.

It’s time to start working together to fix our broken system. We can’t afford not to.

Dr. Steve Morgan is associate professor and associate director at the UBC Centre for Health Services and Policy Research. He is also leader of the Pharmaceutical Policy Research Collaboration (PPRC) and past president of the Canadian Association for Health Services and Policy Research (CAHSPR).

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